Merging east and west, mosques and modernism, traditional foods and trendy cocktails, the city delights with all its compelling contrasts

"Please, sir, I think you need to sit and rest a bit," a roving Good Samaritan said with exaggerated concern as he urged a browser into his tiny shop full of mountains of Turkish carpets. "You look so very wealthy."

And he is only one of hundreds of merchants who fill the sinuous alleys of Istanbul's bustling Grand Bazaar, the world's most fabled marketplace since 1461. When Herman Melville visited the city, then known as Constantinople, in 1856, the Grand Bazaar seemed a leviathan on par with Moby Dick. "A wilderness of traffic," he called it, selling "furniture, arms, silks, confectionery, shoes, saddles—everything. . . . You loose yourself and are bewildered and confounded with the labyrinth, the din, the barbaric confusion of the whole."

Thankfully, some things endure. While faux-Fendi bags and bootleg Bulgari watches may have replaced the saddles and weapons Melville saw, the essence of the bewildering bazaar remains: something for everyone, whether it's rugs, jewels, furniture, boxes, ceramics, housewares, or colorful textiles. That's the beauty of Istanbul—it's a rare combo of enduring tradition and ongoing change. Or, it's an endless contradiction that makes perfect sense. The world's only city spread over two continents, it has served as the capital of three empires, its people and its history a hybrid of Asian, European, Christian, Muslim, and a dozen other cultures living side by side.

"The Istanbul mix is not just about east and west, but old and new, which includes both ancient history and right now," says designer Hakan Ezer, who has created homes for some of the city's most prominent denizens. Outside the windows of his sumptuous showroom in the stylish Çukurcuma neighborhood, the small concrete dome of a hammam is covered with red-and-beige towels drying in the sun. That's the city's trademark—curated modern glamour here, old-school pragmatism there. It's dervishes and discos, the early-morning call to prayer and late-night last call in the bars, ancient stones, 19th-century wood houses, and glass towers.

It's an overscale metropolis meant for drinking in with cinematic sweep one moment and contemplating intimately the next, as with the intricate blue Iznik tiles on the walls of its many historic mosques. In Istanbul multiplicity is mandatory, and nowhere is that more clear than the exploding art scene. The 11th International Istanbul Biennial opens this month, and in 2010 the city becomes a European Capital of Culture, a bit of boosterism that seems almost beside the point for one of the world's most cosmopolitan and cultured places. Several new museums have opened in recent years, including Santralistanbul, a former electrical plant converted into a cutting-edge contemporary-art space. Of course, all this is on top of the staggering Art History 101-required monuments: the Hagia Sophia, the Blue Mosque, and Topkapı Palace, to name but a few.

As for commerce, if shopping can ever be elevated to an art form, it would seem the good people of Istanbul will be the ones to do it. Whether it's women in burkas wending their way down the hill from the Grand Bazaar to the Spice Bazaar on the day's marketing excursions or the Cavalli-clad model types doing the rounds of boutiques in the tony Nişantaşı district, they all go at it with equal fervor. Also drawing crowds are the stunning modern malls Kanyon and Istinye Park, which offer futuristic architecture and an array of renowned international retailers, including Harvey Nichols, Christofle, and Dior.

The sidewalks heat up even more when the sun goes down. As darkness falls, the masses migrate to Istiklal Caddesi, a nearly two-mile-long pedestrian street packed with restaurants, bars, traditional Turkish sweets shops, cinemas, bookstores—virtually any kind of diversion. Hordes promenade, dine, shop, or party (or all of the above) every day here. Where things get really lively is up on the roofs, as the city's trend for penthouse restaurants as hot spots continues unabated. Two current favorites are Mikla and 360 Istanbul, both offering panoramic vistas of the minaret- and dome-studded skyline. "I think we make more of our views than any other major city—especially New York, which is also surrounded by water but you'd never know it," says the bartender at 360 as he tops off the Champagne flutes of a group of twentysomethings just being shown to their table at 11 p.m.

Perhaps not even Manhattan has as many places dedicated to seeing and being seen. But with Istanbul's vast size and notorious traffic, being seen in all the right places can be a logistical nightmare. Karen Fedorko Sefer, whose Sea Song travel service has arranged dinners inside Topkapı Palace, cleverly bought a boat last spring to taxi her clients from dinner to the high-glamour waterside club Reina on the Bosporus. "You get no hassles at the door if you arrive by boat," she jokes.

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It says everything you need to know about the city's ancient-modern style moment that decorator Zeynep Fadillioğlu, who has created some of the most decadent nightclubs and a luxurious hotel, just put the finishing touches on her first mosque, the only one in Turkey designed by a woman. "Everyone here wants to do something new, original, and authentic," she says. "It's not about reviving another version of Ottoman exoticism or 20th-century European modernism, but about taking our roots and creating something contemporary, textured, and sophisticated."

Those roots go way back. Byzantium was already 1,000 years old when Emperor Constantine declared it the capital of the Roman Empire in 330 A.D., dubbed it Constantinople, and transformed it into one of the glories of antiquity. He was the first of many powerful men who would shape its destiny: initially Roman, then Byzantine emperors, followed by the Ottoman sultans, who conquered the city in 1453. And it was Mustafa Kemal, better known as Atatürk, the father of modern Turkey, who officially changed its name to Istanbul in 1930.

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Today it remains as much a composite of cultures and communities as it ever was. Nobel laureate and lifelong resident Orhan Pamuk writes about what has been lost to Istanbul, like the wholesale burning of palatial Ottoman homes and neighborhoods in the early- and mid-20th century. The official population is about 12 million, but everyone acknowledges the figure is more likely 15 million, as people from rural areas continue to move to the city. As a result, gentrification is rapidly sweeping inland on either side of the Bosporus. But even with what little of the staggering architectural patrimony survives—the wood yalis on the waterfront, the telltale domes of the hammams, the striated marble remnants of all its past empires—this is a place that looks like no other.

The Asian side, which contains the Üsküdar and Kadıköy neighborhoods, is greener and more residential. Most of the historic monuments are in the enclave of Sultanahmet on the European side, an area crowned by Topkapı Palace on the evocatively named Seraglio Point. The European side is divided by the Golden Horn, an inlet that forms a natural port and creates spectacular vistas of the nearly countless domes and minarets of the mosques climbing the hillsides. Taksim Square, across the Galata bridge, is the eye of the needle through which traffic arteries flow—or don't, as the case may be. All around it, gentrification hopscotches around the older neighborhoods. With its rows of pretty pastel Deco buildings, the chicer-by-the-minute Cihangir is a haven of trendy clothing stores, furniture galleries, and outdoor cafés. Prime addresses include the Witt Istanbul Suites, a boutique hotel by the local design duo Seyhan Özdemir and Sefer Çağlar, known as Autoban, who are redefining the look of contemporary Istanbul.

Nearby is Çukurcuma, which is increasingly hip, especially the steep and winding street called Faik Paşa, with dozens of high and low antiques shops and vintage boutiques. In the 19th century, the quarter was full of embassies and Italianate architecture, and it retains a unique, slightly international vibe, says Erkal Aksoy, whose store, Alaturca, is packed with kilims and other global finds.

Between Çukurcuma and the Bosporus is the nearly five-year-old Istanbul Modern, in a smartly renovated wharfside warehouse that works perfectly as a backdrop for contemporary art. The museum's café is popular, but it's the resurgence of the water pipe (nargile in Turkish) that draws young Turks to the nearby outdoor chill-out lounges for a postprandial smoke.

Much of the expat community prowls the leafy waterfront districts of Kuruçesme and Bebek. Lined with mansions perched over the Bosporus, the neighborhoods feature low-key but high-style retail options and casual, almost beachy restaurants.

Inland is the boutique-dense Nişantaşı, considered to be the most European shopping area and often compared to Paris's Saint-Germain. Turkish brand Vakko has several stores here, as does the retail temple Beymen, a posh purveyor of international fashion that also has an extensive home store.

In the past few years, the once seriously derelict Akaretler Row, a run of neoclassical townhouses built in the 1870s in the Beşiktaş neighborhood for the officials of nearby Dol­mabahçe Palace, has been reborn with dozens of white-hot luxury boutiques. There is also a new W Hotel with an outpost of Jean-Georges Vongerichten's Spice Market restaurant.

While Turkish food writer Osman Serim appreciates the arrival of global chefs, he also hopes that visitors will seek out dining experiences that can only be had in Istanbul. He recommends visiting pudding shops such as Saray for traditional sweets and baklava, or taking a ferry across the Bosporus to the Asian side for what he promises will be the most memorable seafood meal of your life. "The view is like nothing else in the world—and the same goes for the seafood. Istanbul has such a wealth of places that you can always find exactly what you feel like." Just as at the Grand Bazaar, in Istanbul you can have it all.

Hit the water. A boat ride up the busy Bosporus is the best way to get oriented and take in the sweep of history and the dazzling architecture hugging the shores of this fabled city.

Experience a sacred space. There is a reason the Hagia Sophia merits a whole chapter in college art-history textbooks—the 6th-century church/mosque/museum remains an architectural wonder and an active presence in Istanbul.

Witness a culture clash. European luxury meets Asian opulence at Dolmabahçe Palace (212-236-9000; dolmabahce.gov.tr), the over-the-top 19th-century extravaganza that was home to the last Ottoman sultans.

Shop till you drop. The seemingly endless domed-and-vaulted roof of the Grand Bazaar (grandbazaaristanbul.org) and its surrounding streets shelter roughly 4,000 vendors. It's the ultimate mix of high and low, with everything from vintage diamonds and antique rugs to ceramics, souvenir-stand trinkets, textiles, and T-shirts. For the culinary equivalent, check out the nearby Spice Bazaar.

Four Seasons Hotel Istanbul at Sultanahmet, Tevkifhane Sokak 1, Sultanahmet, 212-402-3000; fourseasons.com/istanbul: The most luxurious address amid the old town's palaces and monuments; or try the new Four Seasons Hotel Istanbul at the Bosphorus for its pampering spa.

360 Istanbul, Istiklal Caddesi, Mısır Apt. 311, Beyoğlu, 533-691-0360; 360istanbul.com: The fun of finding this glam, hopping restaurant atop a nondescript apartment building is just the beginning of a lively night.

Develi, Gümüyüzük Sokak 7, Samatya, 212-529-0833; develikebap.com: There are several locations, but foodies deem this one the best for kebab.